‘Black hole’ in public finances row continues

The Labour government didn’t know about a £22bn annual overshoot in public spending when it came to power in July, the chancellor has again insisted.

Rachel Reeves told the BBC she had “no idea about all the unfunded commitments that the previous government had made”.

Her comments follow the publication of a review by the independent Office for Budget Responsibility (OBR) in which it said the Treasury had withheld information it had about £9.5bn of spending commitments by the previous government.

Shadow chancellor Jeremy Hunt said the OBR hadn’t criticised the Conservatives and had said it was “impossible to know” how much of the £9.5bn would have been compensated for by savings elsewhere.

Speaking to the Today Programme on BBC Radio, 4 Reeves said “nobody knew” about the “in-year overspend” – the so-called black hole.

She said when the new government got the monthly borrowing figures for the first six months of the year they were already running £11bn higher than the OBR forecast in March.

“Times that by two to take us to full year… £22bn more,” she said.

On Wednesday, the government’s official forecaster published a review in which it said it was not told by the Treasury about “large pressures” on public spending at the time of the March Budget.

The OBR said spending measures totalling £9.5bn were not shared with it, giving a false insight into the state of public finances.

It said “had this information been made available”, it would have reached “a materially different judgement” about government spending in the current financial year.

Its assumption of an underspend of £2.9bn published in its Economic and Fiscal Outlook at the time, would “very likely have been dropped” and instead it would have made a “materially higher” forecast for spending this year.

However, the OBR said it could not say how much higher its forecast for departmental spending would have been.

Reeves raised taxes by £40bn in the Budget, which she partly blamed on the Tories making a “series of promises” which they “had no money to deliver”.

But Hunt told the BBC: “Even if the chancellor is right about this £22bn black hole – and I don’t know anyone who actually believes her – she didn’t increase taxes by £22bn, she increased them by £40bn… this was a conscious choice.”

The chancellor’s argument for higher taxes leans heavily on the OBR document, which is being seen by the government as the justification for the Budget.

In her first Budget speech, Reeves said the previous Conservative government had made spending promises which they could not fund and this was “covered up from the British people… and covered up from this House”.

She said she was publishing a line-by-line breakdown of the “black hole that we inherited”.

This showed “hundreds of unfunded pressures on the public finances… this year and into the future too”.

In July, the Treasury published an analysis of £22bn of extra spending pressures it faced. This was described by Labour as the “black hole” it inherited.

On Wednesday, the OBR described a similar increase in spending for the year – £23bn – which it split into the omitted £9.5bn and the cost of new policies announced since the March Budget.

On Wednesday, the chancellor said: “Never again will we allow a government to hide the true state of our public finances from our independent forecaster.”

Reeves went on to say that she would implement all 10 recommendations made by the OBR in its review regarding the future relationship between the forecaster and the Treasury.

Responding to Reeves’ Budget speech, opposition leader Rishi Sunak said Labour’s claims about the state of the economyit had inherited were “purely ludicrous”, adding the tax hikes were Reeves’ choices.

“These are her [Reeves’] choices. So, stop blaming everyone else and take responsibility.” he said.

“Her decision to let borrowing rip make a total nonsense of her claims on the state of the public finances, because if they were truly in such a dire strait, as she has said, what we should have seen today was a significant reduction in borrowing to repair them, not the splurge that she has just unleashed.”

Hunt had previously accused the OBR of failing to act in a “politically impartial manner” by releasing its findings on Budget day.

In a letter to Hunt at the weekend, OBR chairman Richard Hughes said the review was about the “adequacy of the information and assurances provided to the OBR by the Treasury regarding departmental spending”.

The findings and recommendations were about the “institutional relationship” between the OBR and Treasury, Mr Hughes said.

He added the review did not refer to the conduct or decisions of ministers.